by Michael Tarsala
U.S. stocks are selling off for a fifth-straight day as investors wait for the Fed minutes and the earnings picture at home and abroad continues to look muddled.
Today’s release of Fed minutes from the June meeting Wednesday might provide a positive stock market catalyst: Most investors are looking for hints as to the timing and the chances of another round of quantitative easing. The minutes may be among the most pored-over tea leaves all month.
There are two sentiment factors that are working against a strong rally, however.
One is the McClellan Oscillator, one of the best measures of market breadth, and among the best indicators of overbought and oversold conditions.
Recent selling has happened on fairly low volume, and barely making a dent in volatility. As a result, the McClellan has not yet reached oversold territory – let alone the type of deeply oversold territory of -100 or lower that typically results in a market bounce (as was the case in third week of May).
Source: Stockcharts.com
The second issue is the VIX, which remains in a downtrend from the June highs. Yes, it’ has moved higher in recent sessions. But think of a high VIX as potential rally fuel: The three biggest rallies in the past three years were the result of the market burning off volatility extremes. The chart below shows the VIX in red-and-white, and the S&P 500 in black.
Source: Stockcharts.com
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